General Growth Properties, Inc. (GGP)

GGP 
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General Growth Properties, Inc. (GGP)

Q3 2011 Earnings Call

November 09, 2011 11:00 am ET

Executives

David Keating - VP, Corporate Communications

Sandeep Mathrani - CEO

Steve Douglas - CFO

Shobi Khan - COO

Analysts

Jay Habermann - Goldman Sachs

Alexander Goldfarb - Sandler O'Neill

Michael Muller - JPMorgan

Paul Morgan - Morgan Stanley

Ben Yang - KBW

Rich Moore - RBC Capital

Steve Sakwa - ISI Group

Cedrik Lachance - Green Street Advisors

Gautam Garg - Credit Suisse

Presentation

Operator

Good day ladies and gentlemen and welcome to the General Growth Properties Incorporated third quarter 2011 earnings call. At this time all participants are in a listen-only mode. Later we will have a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder today’s conference is being recorded. I would now like to turn the conference over to your host for today Mr. David Keating, Vice President of Corporate Communications. Sir, you may begin.

David Keating

Thank you, operator. Good morning everyone. Thank you for joining the General Growth Properties’ third quarter 2011 earnings conference call. This conference call will contain forward-looking statements about General Growth Properties. Such forward-looking statements are based upon the current beliefs and expectations of GGP’s management and are subject to risks and uncertainties in which actual results could differ from the forward-looking statements.

Such risks are more fully discussed in GGP’s filings with the Securities and Exchange Commission and the information set forth herein should be considered in light of such risk. Acknowledging the fact that this call maybe webcast, we would like to note that this call may include some time-sensitive information that maybe accurate only as of today's date, November 9, 2011.

During this conference we will discuss certain non-GAAP financial measures, a reconciliations of these measures to the most directly comparable GAAP measures are included in the earnings release or in GGP’s supplemental information package available on GGP’s website. GGP does not assume any obligation to update the information contained in this conference call. With that said, I would like to turn the call over to Chief Executive Officer, Sandeep Mathrani.

Sandeep Mathrani

Thank you David. Thank you and good morning everyone. We’re pleased to announce we reported core FFO of $0.23 a diluted share this morning. This FFO result was driven primarily by comparable property NOI growth in the GPP loan portfolio of 2.4%. Steve Douglas will provide more color on the financial results shortly.

We are starting to see a battle shift turn. The efforts upon leasing and development activity is starting to show and will accelerate in the coming quarters. We’re seeing rent spreads and occupancy gains. With regard to tenant sales in our malls for the third quarter, they stand at $471 per square foot, up nearly 8% over the prior year and now up seven quarters in a row.

With these sizeable increases in tenant sales during the past few quarters, total occupancy costs as a percentage has declined. So with occupancy costs in their GGP portfolio now at 13.6%, we continue to have the ability to increase rents. Some specific categories and brand of interest showing sales growth include the luxury sector, limited brands to include Victoria Secrets and Bath & Body and the Bath fashion retailers such as H&M, Forever 21 and Buckle.

Turning to rent spreads as reported with our third quarter disclosure release, they were relatively flat, however, the leases signed after January 1, 2011 rent spreads have increased over 6.7% or $4.03 per square foot on a cash-to-cash basis and over 16.5% or $9.82 per square foot on a cash-to-average basis. The average lease term is about 6.3 years.

Lease spreads in competence or inline space including spaces larger than 10,000 square feet. With more than 9.5 million square feet of leasing activity this year, we have effectively addressed our lease expirations for 2011. In fact, if you look at our total leasing activity there is an additional 4 million square feet addressing approximately 60% of 2012 expirations and have locked in uplift to NOI for 2012 and beyond. Also note emerging retailers include LEGO, Microsoft, Vera Bradley Michael Kors are expanding their footprint. As well as seeing international retailers expanding into the US including Joe Fresh, TopShop and (inaudible).

Further, of the retailers that are performing well, we haven’t seen much reduction in their growth plans for 2012. At quarter end, our retail mall portfolio was 92.7% leased, up 40 basis points from the same period last year. We would have been approximately 93% leased, if not for the impact of the Borders filing, Chapter 11 and liquidation. The growth exposure to Borders was 60 basis points of occupancy. To date, we had mitigated the exposure to 40 basis points and by yearend, that exposure will be reduced to 20 basis points.

Our year end target from all portfolio is 93.5%. In regards to occupancy impacts one focus of lead has been the announcement of GAAP of the closure of numerous locations. This was anticipated for a while as their footprint has been reducing over the last couple of years.

Generally, the quality of the existing GAAP locations and below-market rent helped eliminate any significant impact, and in fact represents an opportunity to achieve increased rents. Briefly on organizational updates, we continue our focus on streamlining the organization and creating efficiency. To date we have incurred approximately $25 million in costs, as a result annual savings were approximately $40 million to the NOI line and a net annual savings of $30 million to FFO.

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